A Shadowy but Powerful Wall St. Firm Has Its Moment in Washington
The GameStop saga was a David-versus-Goliath story, pitting small traders against large hedge funds and a cautionary tale about when fast-moving Silicon Valley collides with the heavily regulated world of Wall Street.
Its ensemble is one of the world’s most influential – and perhaps the least visible figures – Chicago billionaire Kenneth C. Griffin.
And when the House Financial Services Committee questioned the key players in GameStop Madness on Thursday, Mr. Griffin would be asked in two weeks about the two different roles played by his companies in the two-week trading frenzy that has led to billions Created and destroyed dollar property.
The first business, Citadel, is a hedge fund firm that placed a small bet that Gametop’s shares would fall. This was when the shares rose as millions of small investors started buying stocks, but not nearly as much as another hedge fund, Melvin Capital, which took a $ 2 billion investment from the stronghold and was financed by some of its employees. did.
The second business, Citadel Securities, is a brokerage that says it routes over a quarter of all stock trading in the United States. As small investors were fiercely buying and selling Gametop shares – many via trading apps like Robinhood – Citadel was trading briskly. It pays Robinhood and other retail brokerages to handle those orders, and makes money by pushing small price discrepancies between buying and selling quickly adding orders.
“The Citadel is one of many real financial firms that are incredibly important and interwoven throughout the financial system, but are never visible to the public,” said Denise M., president and chief executive officer of Better Markets. Keller said a non-profit organization that supports additional financial regulation. “They work in the shadows and want to live in the shadows and don’t want anyone to see how they conduct their business.”
On Thursday, lawmakers will cast a spotlight on Mr. Griffin. He is scheduled – along with Robinhood and Reddit chief executives, to testify before the House committee about the social media site – the GameStop rally. Also on the witness list are Keith Gill, Reddit user and YouTube poster who made millions from GameTop’s business, who helped popularize him, and Melvin’s founder and chief executive Gab Plotkin, who helped the stronghold with much evil Was kind of squeezed.
In particular, Mr. Griffin would have to address speculation that he used his firms’ involvement to manipulate the situation for his own benefit. Small investors who were upset that Robinhood has curbed GameStop Trading suggested that Citadel had pressured Robinhood to defend its own bets against the video game retailer – a claim that Both Citadel and Robwood have denied it.
“There is a giant pedidarum going on, and it is a crazy theory that we inspired Robinhood or any other firm to impose a trade ban on Gametop,” Mr. Griffin said in an interview Wednesday. “Never in my life have I seen such an absurd theory.”
Representative Maxine Waters, a California Democrat who heads the committee, said that the first of the three she planned – would be a fact-finding mission.
“They will tell their story,” she said of the stronghold and other witnesses. “We hope that from the hearing we will get some facts and a very clear understanding of who did what.”
For Mr. Griffin, who began trading at Harvard as a sompore, the answer to such questions would depend on exactly what the officials of his financial empire are asking for.
The Citadel – a hedge fund – had only a limited stake in Gametop and other “mem” shares that had risen last month. As of January 22, before GameStop went through the roof, on Friday, Citadel’s bet against GameStop was limited to just 92 shares, said a person familiar with the firm’s position at the time. But after the introduction of GameStop, Mr. Griffin – one of the largest operators in the financial world – inaugurated an opening in Melvin.
A lieutenant of Mr. Griffin called Mr. Plotkin to express interest in the investment, Mr. Griffin said. By the end of the day, Citadel and Melvin had a deal to join hands. The stronghold and some of its senior managers will buy less than 10 percent stake in Melvin for $ 2 billion, a person familiar with the details of the transaction was not authorized to disclose its confidential details. That money, with hedge fund points 72 to $ 750 million, allowed Melvin a massive loss of the season as a gametop – a share that was bet – would rise more than 600 percent.
Melvin’s losses were surprising: 53 percent in January. The stronghold, which by then had a small risk of loss to Melvin and a loss on its Gamesoto investment, was down 3 percent. (The S&P 500 was down 1.1 percent for the month.)
But Mr. Griffin’s rise to GameSpop presented to hedge funds has been linked to other roles played by his companies, particularly at Citadel Securities. And it is here that agitated investors sniff a plot.
On the morning of January 28, Robinhood, a Silicon Valley start-up that had become a destination for small investors, curbed the sale of Gametop and some other stocks. The reasons were not fully explained, and they had the immediate effect of reversing the rally.
Users were angry – first with Robinhood, and then with Citadel.
Some amateur traders, knowing that the stronghold had already invested in Melvin and that Citadel Securities had run a large trading campaign, in which Robinhood was a client, jumped to online conspiracy theories. (The arrangement, known as “Pay for Order Flow”, allows users to trade for free on Robinhood and other apps.)
“Didn’t know the stronghold had such a pocket in hand !!” A commentator Written on Reddit’s Wall Street Bates Forum On 31 January. “Keep in mind that they own a part of the Melvin capital! They have tried to rig the market against us.”
Mr Griffin said that he and his team were paying little attention to the online chatter as they were accompanied by a huge influx of trades. On January 28, for example, Citadel Securities took over a total of 7.4 billion shares traded – equivalent to full stock market volume someday in 2019.
But once Mr. Griffin realized the coveted risk of the rumor mill, he put forth statements from both firms to deny any role in Robinhood’s decision to limit the business.
Mr. Griffin and other company executives said that Citadel Securities had no business reason to slow down or shut down the business model. The company collects a small difference between the price of buying and selling as a share as a fee, and slow trading gives limited securities the ability to make money.
But according to the purpose of the stronghold, the CEO of Vitriol, targeted at Citizen, Vlad Tenev, has not come forward with the cause of the recession: heavy trading in wildly swinging stocks by Robinhood users meant a hefty safety-net payment Was required to do. For clearinghouses running the industry that finalize trades.
Thursday’s hearing could reveal more about what has happened so closely inside companies at the GameShop rally, but populist fury from both sides is likely to be directed at small vendors targeting Robinhood and GameStop.
Representative Alexandria Ocasio-Cortez, a New York Democrat and a member of the Financial Services Committee, called Robinhood’s decision to stop certain trades for Gamestop in January “unacceptable.” And Michigan Democrat Rep. Rashida Talib on the committee called the decision “beyond absurd” and accused the app of “blocking the ability of the business” to protect hedge funds.
David McCabe Contributed to reporting.